Martin Stewart founded London Money as a provider of simple, honest advice. He believes brands are vital to the sector and small firms need a leg-up
As the straight-talking, wise-cracking founder of London Money, Martin Stewart needs little introduction to the mortgage broker market.
A self-confessed workaholic, Stewart has built up the London-based financial advice firm from a one-man band in 2011 to a nine-strong team with bold plans for “world domination in bite-size chunks”. Using honesty as a selling point, London Money has set out its stall as a provider of simple, clear financial advice.
Meeting with Stewart at the firm’s headquarters in Victoria, Mortgage Strategy learns about his background, his plans for London Money – including a new co-operative mortgage club and an eventual Aim listing – and why he thinks brokers can learn more from stand-up comedy than from management training.
Stewart set up London Money after 20 years learning the ropes at national IFA firms, often finding out from others “how not to do the job”. The 2008 recession brought a halving of his income and so, with nothing else to lose, he chose to go it alone.
“I’d had enough of people telling me how to do a job they couldn’t do themselves,” says Stewart. “And I’d got fed up with the tail wagging the dog and felt I could do better on my own, knowing which mistakes to avoid.”
Although London Money began as a one-man band, Stewart dreamed big. The firm is best known to Mortgage Strategy readers for its mortgage broking, but it also gives investment, pensions and protection advice; this is to avoid becoming too dependent on the often fickle property market.
Stewart says: “London Money is not about me and it’s not about being a mortgage brokerage. It was never about setting up as a broker and processing mortgages for 30 years. There are easier ways to make a living.
“London Money is a financial services brand. We’ve kept our financial advice licence and we will build on different aspects of the industry, so we will never be completely reliant on the housing and mortgage market.”
In a spirit of diversification the firm launched its second charge packaging arm, London Money Loans, in April.
“We have identified around 30 directly authorised brokers who now understand the market better and we are probably the first DA packager they go to with an enquiry,” he says. “The reason is I know what these brokers are saying, day in, day out. I know what their challenges are because we do this ourselves.
“I’ve always had an issue with larger companies that visit brokers and say: ‘There’s a pen, there’s a mug, there’s a balloon. Do you want to do business?’
“Whereas I say: ‘I’m exactly the same as you; I’ve made mistakes. If you want to learn from those mistakes, you can, and shall we do business together?’
“If I was a DA broker I’d take that over a balloon and a mug any day of the week.”
Second charge boom
Like many others in the industry, Stewart thinks the second charge market is entering a boom phase, helped by the increasing professionalism of the sector.
“Once we get rid of the fear, the industry will explode,” he says. “And I’m not talking up my book.
“One of the reasons brokers will start to embrace this is that the smoke and mirrors that had been associated with the second charge industry until the arrival of the Mortgage Credit Directive will start to dissipate.
“It’s about making it as simple as possible for the broker to feel comfortable in giving their customer the recommendation.”
Big on brands
One thing that is clear from Stewart’s conversation is that he is big on brands, unlike most of the mortgage market. He says this is an oversight by the industry when compared to other sectors.
“Brands are essential in this market,” says Stewart. “Consumers struggle to name mortgage brands, which tells me there is a gap that needs filling. If you’re a mortgage broker, you haven’t really got a brand; you’ve got a database of people who are transacting with you. There’s no real brand value there.
“I learnt during the crunch that there are no assets in the business other than you and the people you know. So I want to make sure that, if there is another downturn, we have other things to do.”
He advocates the use of social media, in particular Twitter, for building brand awareness. This technology is generally under-used in the market but Stewart is known as a prolific tweeter. He claims it both promotes the London Money brand and makes money for his business.
“If you’re not on Twitter, you aren’t taking your business seriously,” he says. “You can make mistakes with Twitter, and we do it all the time, but it’s the best business tool we have, hands down.”
“We’ve probably generated £30,000 to £40,000 of business that we can directly attribute to Twitter.”
One of Stewart’s hobbies is doing improvised stand-up comedy, which he says has taught him more about business than any management consultant, a field he gleefully dubs “bollocks”.
“I don’t believe in all this business coaching. The best thing you can do is get on stage in front of a load of people,” he says.
“You can do a comedy course for £200 and become a better individual, rather than use a coach who charges £200 an hour.”
Presumably one also becomes a more interesting dinner companion.
Stewart says doing improvised comedy has taught him two things of particular use in the business world: do not be scared to fail; and do not be afraid to embellish ideas and look for ways to take them forward
“You will never be scared of failure again if you can walk out on stage in front of 80 people and not know what you’re going to say,” says Stewart.
“And, if anyone comes to me, I expect them to embellish something I’ve suggested, and vice versa. So now, if I’m speaking to someone about a business idea and people shut me down and say it won’t work, it tells me a lot about that individual, and that we are not compatible.”
Join the club
Talking of business ideas, Stewart has been working on one that could shake up the established mortgage clubs: a new co-operative club for DA brokers.
Stewart says he had a brainwave when questioning how a large mortgage club could justify taking £62 in commission from a £714 procuration fee. He realised that, scaled up, this represented an enormous amount of lost revenue for DA brokers going through clubs.
Of course, the big draw by mortgage clubs is the preferable rates they offer DA brokers through bargaining with lenders. Therefore, argues Stewart, why not get together a group of DA brokers to command the same buying power from lenders, but strip out the unnecessary costs?
Although mortgage clubs offer other services to brokers that justify their fee, such as advice helplines, Stewart says he rarely uses these.
“If we do 200 mortgages a year, you’re looking at £12,000 in revenue for using a particular mortgage club,” he says. “So, if I’m losing £12,000 a year, there have to be 100 DA brokers also losing that each year. That’s £1.2m in lost revenue for DA brokers; quite a big price to pay.
“So my answer is, if those 100 brokers all do £40m of lending a year, that’s £4bn of potential lending in that collective. If I was a lender, I’d be interested in that £4bn.”
Stewart hopes to bring together 100 brokers in a ‘DA Alliance’, which would charge £500 a year to cover the costs of running the club. He says 25 brokers have shown interest already.
“That broker has gone from losing £12,000 of potential income to making £11,500, because this is a non-profit scenario to cover costs and then give money back to the broker,” he explains.
“Brokers need to look up, identify those in a similar situation and start working better as a unit. No one is asking anyone to do anything different but just to work together as a collective, make more profit, and share knowledge and best practice, which a lot of DA brokers don’t do.”
Stewart thinks such a club would level the playing field and give DA brokers a bigger voice in the industry.
He says: “You’ve got Ami, but it’s got bigger agendas. Ours is a smaller agenda: to put money back in brokers’ pockets. If we did make a profit, we’d put it out in advertising.
“There are definitely cartels in the industry. I just want these little brokers, small firms, to get a leg-up. The banks aren’t going to lose out – they will still get the business and pay the proc fee –but the DA Alliance would strip the profit out of that and give it back to the broker. I can’t see how this can’t work.”
Stewart is calling on interested brokers to email him. He adds that he is willing to run the alliance and act as a figurehead but it would be separate from London Money.
“I don’t mind sticking my head above the parapet,” he says, “although I’d like to think, if it was an alliance, other people would pick up some of the burden.”
So what issues keep the London Money founder awake at night?
“The thing that always worries me is that the tide is going to go out at some point,” he says. “That’s guaranteed. What we don’t know is what it will look like when it does.
“Things were brutal in 2008/09 and we haven’t fixed many of the problems since then. We don’t have a lot left to throw at issues if things go wrong the second time around.”
Stewart has a quantitative mathematician as a client, who believes some of the risks associated with the financial instruments that contributed to the sub-prime mortgage crisis remain relevant.
“Some of these instruments take 15 years to unwind,” says Stewart. “So they’re still out there, ticking away. And we don’t know where the bomb is, even after all this time.”
He adds that one of his biggest concerns is the unintended consequences of decisions, taking as an example Brexit and its potential impact on the UK economy.
“Brexit hasn’t happened yet,” he says. “It’s like telling your partner you’re going to leave them but you haven’t had the divorce. So the issue of Brexit could be huge for this country.
“Forty years ago, European countries said: ‘Let’s get together, everyone bring a different ingredient, and we’ll make a cake and eat it as individuals.’ You can’t then come back after 40 years and say: ‘We want our eggs back.’
“The unintended consequences of decisions we make are probably the most dangerous ones.”
Another problem for brokers is overcautious lenders, says Stewart.
“They’re very fearful at the moment and I don’t know why. Is it another crash, is it fraud, is it regulation? We’ve got cases that are no risk to anybody where, if I was an underwriter and one arrived on my desk on Monday, it would be signed off on Monday and completed on Friday. Yet these cases are taking six weeks sometimes.
“That’s where it’s wrong. That’s where technology should have taken more control.”
Looking to the future, Stewart dreams of London Money being listed on the London Stock Exchange. He says: “To me, London Money is an Aim-listed company; that’s where I see it going. I believe London Money can be a recognised brand within financial services.
“That’s me thinking big but that’s how you’ve got to think. Maybe disturb a few things along the way and make our brand stand out from other financial services brands. We are not going to rely on just the mortgage industry to get us onto the Aim market.”
So what else does London Money aspire to? “World domination in bite-sized chunks,” Stewart deadpans.
“We’re quite slow moving, almost glacial. We’re never first out of the trap. But that suits me down to the ground. We’ve got a solid back office, we’re well capitalised; we’re now in a position to grow this.”
Stewart wants London Money to continue to diversify to protect against another serious downturn in the property market.
“If the tide does go out, I’ve got a pair of trunks on,” he says. “An awful lot of people out there won’t have.”
He hopes to launch a similar venture to London Money Loans but for commercial broking.
He says: “London Money Commercial will be exactly the same, but for commercial lending. We will take a commercial broking opportunity back out to DA advisers and tell them how to source new business opportunities for the commercial clients they haven’t known what to do with.
“To build a business that makes half a million pounds of net profit is not easy. There are people in our industry who turn over millions but don’t make that half a million of net profit. But if you try to get five businesses to make £100,000 a year of profit, that’s not difficult. So our plan is to bring in more things as we go along.”
London Money has grown quickly in its first five years. It may be young but, with several strings to its bow and expansion plans afoot, it will never make the market wait long for news of its latest developments.